How does the rent system work in Sweden?
The Swedish rental system is complex and has evolved over a long period of time. This means that rents can differ significantly between homes that on the surface may be perceived as equivalent. For many, it is difficult to understand why the differences are so large – especially between older and newer homes.
Here we briefly explain how the system works and why the rents differ the way they do.
What is the utility value system?
In Sweden, rents are set based on the so-called utility value system. This means that the rent should reflect the home’s utility value, i.e. how attractive the home is to an average tenant.
The assessment takes into account, among other things:
- the standard and equipment of the home
- the layout and size
- the condition of the property
- common areas
- location, based on the system’s own comparisons
The utility value is relative. It is determined by comparisons with other homes in the existing stock, not by market prices or willingness to pay.
Why do rents differ between older and new homes?
A large part of the Swedish housing was built during periods when construction costs were significantly lower than today. The rents in these properties were set based on the conditions at the time and have subsequently been adjusted gradually through annual negotiations.
Since Sweden lacks freer market pricing, there is no mechanism that allows rents in older stock to “catch up” with new production over time. Square meter rents in older homes – sometimes in very attractive locations – can therefore be significantly lower than rents in newly produced homes.
The differences depend largely on when the home was built and how rents have historically developed, not necessarily on quality or location today.
There have also been government investment subsidies for rental housing during certain periods. These subsidies have meant that rents in certain relatively newly built properties have been set lower than in comparable new production without subsidies.
This means that homes of similar age, standard and location can in some cases have different rent levels, depending on the economic conditions that applied at the time of construction. This is another example of how historical conditions affect rents over time.
How are rents set in newly constructed houses?
Rents in new construction are tested upon move-in and are set based on:
- current construction costs
- the standard and design of the home
- comparisons with other new construction
Newly constructed housing is therefore tested against today's conditions, not against rents in older stock that were built under completely different economic conditions. This leads to rents in new construction often being higher per square meter than average rents in the entire housing stock.
Why the differences can be perceived as unfair
For tenants, it can be difficult to understand why two homes with a similar standard and location can have very different rents. The differences depend largely on how the Swedish rent-setting system is structured and how rents have developed over time, rather than on individual decisions today.
The system is designed for stability and predictability, but this also means that historical differences will persist for a long time.
Rent negotiations in practice
Rents are set and adjusted through negotiations between landlords and tenant organizations. In recent years, these negotiations have in many cases become more complex, among other things as a result of:
- dramatically increased construction and financing costs
- a period of unusually high inflation
- new types of housing that do not fit into traditional calculation models
This has made it more difficult to achieve long-term sustainable rent levels in certain contexts.
New housing forms and the limitations of the system
In recent years, housing forms such as coliving, corporate housing and other arrangements have emerged. These housing units may include services, shared spaces or special forms of agreement, which makes them difficult to test within traditional utility value comparisons.
When housing forms do not fit into existing models, there is a need for adapted ways of negotiating and assessing rents, so that both the security of tenants and long-term sustainability can be ensured.
Long-term and housing security
A central challenge in rent setting is to find levels that both make it possible to build and manage rental properties and at the same time provide tenants with stable and predictable conditions over time.
For many tenants, the opportunity to stay is more important than short-term low rents that are later adjusted significantly. Therefore, a long-term perspective and stability play a crucial role in how rents should be set and developed.
How does location affect rent in the utility value system?
Location is a factor that can be included in the utility value assessment according to Swedish rental legislation. This means that the home's surroundings, access to services, communications and the attractiveness of the area can affect the utility value.
At the same time, the utility value system's view of location differs from how location is valued in a free market. In Sweden, location is assessed relatively, through comparisons with other housing in the existing stock, rather than through demand pressure or willingness to pay.
In practice, location has therefore often had limited impact, especially in older housing stocks where rents have developed gradually over a long period of time.
Why is it usually Hyresgästföreningen that negotiates rents?
In Sweden, the Tenants' Association has for a long time been the dominant organization representing tenants in collective rent negotiations. This has contributed to many perceiving the association as the obvious party in rent setting.
However, tenant organizations are non-profit interest organizations. They are not authorities and do not set rents unilaterally. Their role is to represent tenants in negotiations, in the same way that trade unions represent employees in wage negotiations.
The fact that an actor has acquired a dominant role is mainly due to historical and structural factors, such as long organizational structure, local presence and collective affiliations. Other forms of representation are also fully permitted by law.
The role of Hyresnämnden (housing council)
If the parties cannot agree, the rent can be reviewed by a rent board. The rent board is a state body that reviews the reasonableness of individual cases, but does not negotiate or set general rents.
When many negotiations fail and proceed to review, the system can be perceived as more legally governed than negotiation-based.
Why is it not possible to build “cheap rental apartments” like in the inner city?
Many people are asking for more rental apartments with low rents, on par with older inner city housing. This is a reasonable desire. At the same time, it is important to understand why such rents cannot be recreated in new construction within today's system.
The low rents in older inner city housing are historic. They reflect housing that was built several decades ago, with completely different construction costs, land prices and financing conditions than today. Rents have subsequently developed slowly over a long period of time.
When new rental apartments are built today, the rents must bear today's costs for construction, land, financing and modern requirements for standards and accessibility. These costs cannot be negotiated away.
The utility value system is designed for stability over time. It is not a tool for creating low rents from the start in new production. Low rents only arise in the system after a long time – not when moving in.
How housing queues are related to rents and location
Because rents in older stock in attractive locations are often low in relation to demand, very long housing queues arise. In practice, this means that housing in the inner city and other attractive areas often requires very long waiting times, while people with shorter waiting times are mainly offered new production or housing in outer areas.
This is a direct consequence of how the system works:
- rents in older stock are held back by historical levels
- location has limited impact on rent
- demand drives queuing time rather than price
The result is that low-rent housing in attractive locations is distributed by time in the queue, not by willingness to pay. This may be perceived as unfair, but is a consequence of a system that prioritizes stability and predictability in rents.
Summary
The Swedish rent-setting system is based on historical comparisons and gradual changes. This creates stability, but also leads to large differences between older and newer housing.
Understanding these differences requires knowledge of how the system works over time. Only then can a constructive discussion be held about how the future rental market can function in a way that is legally secure, long-term and understandable for both tenants and property owners.